A new set of graduates faces Social Security uncertainty

Graduates by research paper, economists Erzo F. P. Luttmer and Andrew A. Samwick conducted a survey and found that, on average, individuals between the age of 25 and 59 expect to receive only 60 percent of the Social Security benefits that they have been promised. But there’s a great deal of uncertainty, as respondents differed in their assessments of how much their benefits would be cut. The researchers estimated that people would be willing to tolerate an additional 4-6 percent cut in benefits in exchange for certainty about the level of benefits.

In a separate study, Francisco J. Gomes, Laurence J. Kotlikoff, and Luis M. Viceira estimated that individuals would be willing to give up 0.6 percent of their lifetime earnings in exchange for learning about their benefit cut at age 28 instead of age 65.

Some will argue that because the deficit for 2013 is now projected to be much smaller than previously expected – only $642 billion, or 4 percent of GDP – Congress has time to wait to reform entitlement programs. Such a conclusion would be mistaken.

Changes to entitlements are unavoidable. Benefits will have to be cut or taxes increased. But uncertainty about these changes can be avoided by making them now rather than later. Acting now not only reduces the burden of adjustment on future generations, it also reduces the uncertainty these generations face in planning for retirement.

Aspen Gorry is a research fellow at the American Enterprise Institute and an assistant professor at the University of California, Santa Cruz, and Sita Nataraj Slavov is a resident scholar at AEI.